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For antitrust attorneys and their clients, receiving the ominous sounding “Request for Additional Information and Other Documentary Material” (commonly referred to as a “second request”) is about as welcome as major oral surgery — painful, expensive, and mind-numbing. The Federal Trade Commission and the Antitrust Division of the Department of Justice have almost unlimited powers to demand a wide scope of information in merger investigations. Yet with effective pre-merger planning and careful discovery management, these burdens can be effectively negotiated, limited, and managed. In the 1990s, there was a torrent of criticism of the second request process. The investigations usually took several months, the document production was voluminous and very expensive, and the agencies provided limited advice about the process. Faced with such ominous obligations, the merging parties sometimes just gave up the battle. After all, the agencies held all the cards and could use their power to extract concessions or settlements that might be unwarranted. It was particularly troubling when parties would end up providing hundreds of boxes of documents on issues that in the end were never even addressed by the agencies. To use a cost-benefit analysis, all the costs were on the parties and all the benefits were received by the agencies. Spearheaded primarily by the FTC, the current administration has begun to grapple with the burdens of the process to attempt to make it more rationale, cost-effective, and transparent. Recent changes include increased transparency of the substantive review of mergers, leading to a better understanding of agency enforcement, as well as more streamlined rules governing the production of documents and information pursuant to a second request. Chief among these are policies designed to address the increased used of electronic document productions. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), certain mergers, acquisitions, and joint ventures are subject to pre-consummation review by either the FTC or the DOJ. Only about 2 to 3 percent of transactions raise serious competitive concerns and are subject to a second request. In many cases, even after the issuance of a second request, the parties and the agency reach a settlement without the parties having to “substantially comply” with the second request. But in the small number of cases each year where parties are compelled to comply, the burdens and strain of a second request can be overwhelming. Costs can easily run into the millions of dollars, and it typically takes several months to complete the document review and compile the information. This requires a substantial time commitment from company employees and executives, often disrupting the client’s day-to-day operations. The logistics of compliance can also consume significant attorney time, diverting attention away from the substantive antitrust issues. High-tech industries and financially distressed companies are particularly vulnerable to the impact of prolonged merger investigations. LIGHTENING THE LOAD Fortunately, the current administration’s antitrust regulators have made reforming this process a major priority. In 2002, the FTC held several public workshops around the country focusing on “best practices” in the merger review process, with the goal of increasing the efficiency of and reducing the burden and duration of merger investigations under the HSR Act. In December 2002, the FTC released its Guidelines for Merger Investigations. The guidelines sought to increase transparency and provide benchmarks to level the playing field in negotiating compliance with the second request. Most of the changes attempted to make the second request process more akin to federal court discovery. Some of the key modernizations include giving the merging parties access to investigational hearing transcripts, easing the second request requirements relating to document categorization, easing the policy regarding “second sweeps” of company files, and encouraging parties to submit second-request responses in an electronic format rather than hard copy documents. In recent second requests, it appears that the FTC is looking for page-based formats with searchable texts. During a December 2003 program sponsored by the ABA Antitrust Section, D. Bruce Hoffman, deputy director of the FTC’s Bureau of Competition, further elaborated on the FTC’s preferences for electronic productions. First, he noted that the FTC now prefers electronic documents to be produced via a third-party vendor in an online environment because of the agency’s limited resources and experience with electronic productions. He also highlighted some practical strategies to streamline the process. Early on in the second request process, parties should arrange for their electronic document vendor to meet with FTC staff to demonstrate the on-line application and ensure that it meets the requirements detailed in the Guidelines for Merger Investigations. He also cautioned that parties should be careful not to demonstrate features and then turn them off after providing access to the FTC. In one such instance, the FTC took this action very seriously, and it raised concern within the agency about the transaction as a whole. A common fault with electronic productions, Hoffman continued, is the use of date codes in documents — a feature of many popular software applications. When documents are printed or produced electronically, the date may be frozen, indicating the time that the document was last reviewed rather than created. Second requests now deal with this issue by calling for metadata (i.e., embedded data that does not print with the document) to be produced along with the electronic documents. Such metadata is linked to and searchable with the corresponding electronic document. The FTC also wants control of the electronic production in the hands of the vendor once it is complete, and rules put in place to limit the ability of the producing party to later remove or add documents without notice to the agency. These rules would include some type of agreement with the third-party vendor that the production database can be altered only if the FTC agrees to the change. In other words, materials produced through an electronic vendor should be treated similarly to those in a paper production. ELECTRONIC RECORDS The changes in FTC policy regarding electronic document productions reflect a broader shift in the way discovery has been transformed in recent years. The evolution of electronic discovery and document production seems to have arrived on the scene almost overnight. During the merger wave of the 1990s, most productions in response to second requests were still hard copy — meaning that hundreds, if not thousands, of boxes of documents could be produced to the FTC or the DOJ. Data was also often produced on CD-ROMs or electronic tapes. Today, there may still be hundreds of boxes full of documents, but thanks to the digital revolution, most companies now also have vast quantities of electronic messages and documents that attorneys must review to respond to a second request. In fact, the majority of documents today that are responsive to a second request are likely to be in electronic form — e-mail messages and their attachments, letters, memos, spreadsheets, financial documents, and other business records. Thus, in addition to searching employee files and business records, attorneys must also search e-mail servers, network drives, personal computer hard drives, and even network backup tapes. Privilege also is a key concern, which means that every document, whether paper or electronic, must be reviewed by an attorney. There are several strategies that can help reduce the burdens of complying with a second request. These strategies are of utmost importance, especially since the pressure to complete the request as soon as possible is immense. Time is the enemy — clients want to close the deal, and they don’t like waiting. Initially, the focus should be on limiting the scope of the second request — the “who, what, where, and when” — through negotiations with the antitrust agency reviewing the transaction. This means poring over organization charts to identify the key employees and departments that should be searched (the “who”); narrowing the substantive issues and product lines or businesses at issue (the “what”); identifying the offices and company locations that need to be searched (the “where”); and negotiating a relevant time frame to be covered by the search (the “when”). Cooperation from the agency staff is essential to ensure that the process is manageable under the incredible time pressures. However, staff attorneys are often reluctant to agree to limitations for fear that they will miss key evidence. We have found that engaging the staff early and often will give them the time and knowledge necessary to become comfortable with modifying the second request. There are some additional strategies that may help to reduce the volume of electronic documents. Although it appears that the FTC and the DOJ are not yet openly receptive to the use of search terms for retrieving responsive e-mail or electronic documents, it is a subject that should be raised to see if a workable solution can be found. Furthermore, it may be possible to negotiate a more-limited time frame for e-mail messages and other regular correspondence, as opposed to financial or company data or strategic documents. Another strategy for reducing the volume of electronic documents is known as “de-duping.” This process removes any exact duplicates of e-mail that exist on the server and may reduce the volume of potentially responsive documents by as much as 30 percent. Finally, depending on the client’s document retention policy, a company may keep only a few months’ worth of e-mail and other electronic files on its server, with backup tapes of older data. Typically, the purpose of these backup tapes is not archival, but rather for disaster recovery. The cost and time to recover data from these tapes in immense. In response to these concerns, the FTC addressed this issue in its December 2002 Guidelines for Merger Investigations. While not agreeing to forgo the production of documents from backup tapes, the FTC provided a range of options for negotiation, from excluding production altogether to limiting the search to requiring a complete search. Parties should be prepared to approach the FTC with IT personnel and information to better negotiate search limits. A FEW TIPS In general, when parties are presented with a second request, a few key strategies can make the process less onerous. 1. Interview a number of e-document vendors to determine which company is best able to cope with your client’s electronic universe of documents. You should obtain cost estimates, but note that efficiency ultimately may save you the most money. 2. Involve your vendor in your early discussions with the antitrust agency. Your vendor can help interpret the agency’s techno-speak and will be able to conduct a demonstration of your proposed e-production protocols to ensure that it meets the agency’s requirements. 3. Narrow the scope of the electronic production as much as possible. Otherwise you will be drowning in a sea of electronic documents. We have found it most useful to begin this process in the initial 30-day waiting period and progressively narrow the scope. The agency staff is willing to listen to persuasive arguments in favor of limitations, provided you have been candid from the beginning. 4. The increased efficiency of electronic productions is both a shield and a sword. Just as you must carefully review hard documents, electronic files must be thoroughly screened for privilege, relevance, and harm/benefit. The burdens and costs of complying with a second request are significant, and the growth of electronic data has only increased the amount of potentially responsive information. Recent efforts to improve the efficiency of responding to second requests are a welcome development. It is vital, however, that the FTC and the DOJ continue to publicize additional best practices as their experience with electronic discovery and document productions increases. David A. Balto is a partner and Douglas M. Jasinski is an associate in the Washington, D.C., office of White & Case LLP, and both are members of the firm’s worldwide antitrust practice. Balto was director of the Office of Policy and Evaluation in the FTC’s Bureau of Competition during the Clinton administration. They can be reached at: [email protected] and [email protected], respectively.

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